While availing a loan, the most important part is the loan repayment process. The funds that are sanctioned by the financial institutions depends on the repayment capacity of the individual. Therefore, before applying for a loan, you must check the amount that you need to pay as in the form of EMIs every month. This will, in turn, help you to purchase a dream car of your choice without the chances of loan application getting rejected. Also, it will help you in making an informed decision and will reduce the chances of default due to any monetary constraints. So, it is important to check EMIs beforehand and choose a plan that suits your financial requirement and repayment capacity. Read here to know everything in detail about car loan EMI Calculation.
What is EMI?
EMI is the abbreviation for Equated Monthly Installments. When a borrower applies for a loan, they need to repay it along with predetermined rate of interest in small amounts till the completion of the loan tenure.
Factors affecting Car Loan EMI
Loan amount – This is the amount that a borrower decides to avail from the bank or an NBFC to finance their car purchase. The higher the loan amount, the higher will be your monthly EMIs.
Rate of interest – This is the interest charged by the lender while offering you a loan. Therefore, the higher the interest rate, the more you will have to pay as monthly installments.
Loan Tenure – This is the duration that a borrower is required to pay the debt through EMIs. The longer the tenure, the lower will be the EMI.
Down payment- Down payment is the lump sum money that the borrower needs to pay upfront while purchasing a car. Since part of the price of the chosen car is paid by the customer itself, the loan amount also comes down. Therefore, the amount of payable EMI is also reduced.
The formula for Car Loan EMI Calculation
The formula to calculate the EMI of your car loan is mentioned below:
E = P x R x (1 + R) ^n / ((1 + R) ^n – 1)
Here, E is the amount of EMI payable, P is the principal amount of loan, R is the rate of interest, n is the number of installments.
Why you should make use of an Online Car Loan EMI Calculator?
Calculating the EMI on your car loan manually using the above-mentioned formula is a tedious task along with being prone to human errors. Therefore, you can use an online car loan EMI calculator and find out your monthly EMI payments easily.
The process of calculation is easy. All you need to do is provide some details of your loan such as the loan amount, loan tenure, and rate of interest. Once you have submitted all the details, the EMI calculator will give you the correct output.
While checking your EMI using an online calculator, you will also have the benefit of adjusting the EMI by changing the parameters. Once you have chosen a plan that suits your requirement and circumstances, you can apply for the loan online or offline through a lender of your choice.
Benefits of calculating EMI before applying for a Car Loan
Manage your finances better: When you use an EMI calculator, you will get to know your monthly EMI payments beforehand. This will not only help you in managing your finances better but will also assist you to repay your loan on time.
Decrease your chances of defaulting: Learning about monthly instalments before filing a loan application helps borrowers to apply for a loan amount within your repayment capacity. Additionally, borrowers can also opt to extend their loan tenure to increase their loan amount eligibility or reduce the payable EMI. This can reduce their chances of defaulting significantly.
Compare the rates of different lenders: By using an EMI calculator along with an amortization table, borrowers can evaluate which loan scheme better suits their requirement while offering more advantageous terms such as a higher quantum of loan, low rate of interest, less repayment tenure, etc. Checking and comparing different plans by multiple lenders online can also help them to learn about any ongoing offers.
Allows you to evaluate multiple EMIs: Online EMI calculators also allow you to view the various combinations of loan tenures and interest rates. This helps you to choose the EMI that best suits your repayment capacity.
Reduce the chances of loan rejection: As you can adjust the variables in an EMI calculator for a car loan and choose the best plan for yourself that matches your repayment capacity and requirements, the chances of your loan getting rejected also get reduced.
Maintain a better credit profile: When you choose a scheme that is more suitable to you in terms of repayment, the chances of loan default get reduced. Therefore, it can help the individual maintain his or her credit score to get easy approval on future credit applications.